It's done

PCCW announces that it has raised $6.7 billion through the provision of two new loans.

PCCW has announced that it has received firm underwriting offers from banks for its $4.7 billion refinancing loan as well as a $2 billion project finance loan for its Internet Protocol Backbone joint venture with Telstra.

"We have worked very closely with the banking community and I believe these commitments demonstrate strong confidence in our newly merged group, its financial strength and our future growth prospects," said Francis Yuen, deputy chairman of PCCW. 

Details of the main $4.7 billion refinancing loan were supposed to be forthcoming this evening (Wednesday). However one banker close to the transaction has reported to that one or two of the underwriters have been slow in signing the relevant documents and so the lead arranger signing ceremony will take place tomorrow morning (Thursday) in Hong Kong as opposed to this evening as was originally planned.

Sources close to the deal suggest that the $4.7 billion facility is to be fully underwritten by five banks: Barclays, Chase Manhattan, HSBC, Bank of China and Fuji Bank. The same sources indicate that the price at which the facility will be underwritten would be around 85bp over Libor for the credit, but with fees the all-in spread would rise to just over the 100bp level. The deal is widely believed to be structured in three tranches with maturities of three, five and seven years. Firm details of the size of the tranches and the spreads of each tranche will emerge tomorrow (Thursday).

The proceeds of this loan will be used to refinance the original $9 billion loan that was signed on February 29th to fund the purchase of C&W HKT.

The refinancing loan was arranged at the same time as a new loan for the PCCW/Telstra internet backbone joint venture. Internet Protocol Backbone Company (IPBC) is a 50:50 joint venture between PCCW and Telstra. The fully underwritten, $2 billion syndicated loan is being led by Chase Manhattan and Barclays. Like its larger cousin, this loan has three tranches with maturities of three, five and seven years. Details of the size of the tranches and their respective prices are also likely to be announced tomorrow (Thursday).

This loan forms part of the PCCW/Telstra pan-Asian alliance which was announced on October 13. Under the terms of this alliance, IPBC will raise the facility which will be non-recourse to either of the joint venture partners. Proceeds of the loan will be used to pay for the assets that PCCW contributed to IPBC as well as to return capital to shareholders. Syndication is to take place in December with draw down coming when all of PCCW's and Telstra's other commitments under the alliance are fulfilled. These commitments include the establishment of a regional wireless company and the issuance of a convertible note.

Signing the two loan agreements is the final piece in the jigsaw of financial arrangements that PCCW has undertaken to fund its summer purchase of C&W HKT. The company's next challenge both at the parent level and at the joint venture level is to persuade the rating agencies that its credit is as good as the banks obviously think it is. Given that the rating agencies will not be offered the huge fees that PCCW has given to the banking community over the past year, it might prove more difficult to sell that story to them than it was to sell it to the banks.

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